Archives for March 2012

March 2012 - Page 7 of 12 - Money Morning - Only the News You Can Profit From

The Greg Smith Goldman Sachs (NYSE: GS) Letter Led to $2.2 Billion Loss - More to Come?

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The scathing op-ed piece by former Goldman Sachs Group Inc. (NYSE: GS) employee Greg Smith did more than draw attention to a "toxic and destructive" firm culture – it drove down Goldman's market value by $2.2 billion yesterday (Wednesday).

Goldman shares fell 3.4% Wednesday, the third-biggest decline in the Standard & Poor's 500 Financials Index.

Smith pointed to Chief Executive Officer Lloyd Blankfein and company president Gary D. Cohn as responsible for letting the firm falter.

"I truly believe that this decline in the firm's moral fiber represents the single most serious threat to its long-run survival," wrote Smith.

Smith painted a picture of executives with zero respect for their clients, saying it makes him "ill how callously people talk about ripping their clients off," and that in the past year he's heard five different managing directors refer to their clients as "muppets."

Even though Smith's Goldman letter weighed on the bank's share price Wednesday, shares had almost made up the losses by midday trading today (Thursday).

So just how much will the Goldman letter actually weigh on GS stock and popularity?

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Buy, Sell or Hold: Hecla Mining Co.'s (NYSE:HL) Silver Moment

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Shares of Hecla Mining Co. (NYSE:HL) have been beaten up during what should be extremely bullish conditions for the largest silver miner in the United States.

I think that presents some value for investors willing to take a contrarian view.

As I write this, Hecla Mining is down 50% in the past 52 weeks. I honestly find this situation a headscratcher − especially in light of where silver prices may be headed.

What's more, the company is sitting on a horde of cash and carries no net debt. This means the company is stable and able to function without access to capital markets.

As an investor, I consider this situation nearly bulletproof.

Notice that I said "nearly" – not completely.

There is one thing that can severely damage a company with a solid balance sheet. It is called lawsuits.

Unfortunately for Hecla, they had a bad 2011 in that regard.

The company had two fatal accidents at a producing mine with an additional third event that injured seven more workers.

These events caused the Mine Safety and Health Administration ( MSHA) to close the shaft in question and require the removal of built-up material before Hecla can resume operations.

Known as the Lucky Friday mine, it may be shut down throughout 2012.

In the aftermath, a specific group of investors became so angry with management's disclosures relating to these fatal accidents that they filed suit.

This bad luck streak in the mines and in the courtrooms has hammered the stock price to a point I now find cheap, even considering the potentially damaging lawsuits.

In short, when I look at Hecla Mining today, I see value investing is at its best.

I love to find an out-of-favor stock where the fundamentals are still strong and the company is already profitable.

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Investing in Mongolia: Is It Time to Buy the World's Fastest Growing Economy?

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It is the world's fastest growing economy. It also may be the world's best kept secret.

Yet it is true. Mongolia is growing twice as fast as China and it's a market most investors know little about.

While Chinese GDP is forecast to grow by 7.5% in 2012, the Mongolian economy is set to grow at a blistering pace of 14.9%.

That's down a bit from 2011-but not by much.

According to official statistics, the Mongolian economy grew 17.3% in 2011.

Taking the two together, Mongolia would have the world's fastest growth rate, beating Qatar and Libya over the same two-year time frame.

So is there a way a regular guy can make money out of all this growth?

Or to the larger question: Is the Mongolian market where we should be putting our hard-earned savings?

Investing In Mongolia

To start, it's not all good news when it comes to investing in Mongolia. There is some bad economic news that comes along with the good.

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Why March Madness is Bigger than the Super Bowl

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If you're planning on taking a little bit of time out of your work day to watch the first round of March Madness today, you're not alone.

A survey by MSN showed 86% of employees will spend at least part of their workday checking in on the tournament, up from 81% last year.

And 56% of employees will devote at least one working hour to each of the first two days of March Madness.

With U.S. workers earning an average of $23.29 per hour, employers will lose roughly $175 million to distracted employees on just those two days, according to Chicago-based outplacement firm Challenger, Gray & Christmas.

In the past, the firm has found that in all more than $1 billion worth of productivity goes to waste during the entire March Madness tournament.

Of course, the tournament doesn't just lose money…

March Madness also makes it – a lot of it as it turns out.

March Madness Has More Green than the St. Patrick's Day Parade

The most watched tournament in the country generates over 90% of the NCAA's entire operating revenue.

And it means even bigger business for CBS Corp. (NYSE: CBS) and Time Warner Inc. (NYSE: TWX), which teamed up to pay $10.8 billion for the rights to broadcast the tournament through 2024.

While a 30-second spot during this year's Super Bowl cost a record $3.5 million, the 3.5 hour long program still only generated about $245 million of total ad revenue.

But with three Turner Networks sharing broadcast rights with CBS, the four channels took in $738 million in ad sales last year.

That's 20.2% more than in 2010, when the tourney brought in $613.8 million.

And that doesn't even include revenue from online advertisements on streaming games or a new smartphone app selling for the first time this year at a price of $3.99.

Online viewing has become extremely popular over the years, especially during the first two days of the tournament when multiple games take place during working hours.

In 2011, CBS and Time Warner said free digital viewing resulted in an average of 2.4 million daily unique visitors on broadband and 702,000 average daily unique users on the mobile app.

In total, there were 26.7 million visits across online and mobile from the start of the First Four on March 15 to the completion of the third round on March 20. That was a 63% increase over the year prior.

Meanwhile, online revenue from the tournament surged 825% from $4 million in 2006 to $37 million in 2010. There's no data available on how much it took in last year.

Then there's the gambling.

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Did Federal Reserve Bank Stress Tests Fuel Too Much Confidence?

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The Federal Reserve released the results of its third round of bank stress tests yesterday (Tuesday), determining 15 of the 19 tested banks were in good enough shape to withstand a severe recession.

The Fed tested whether banks have enough capital to survive an unemployment rate of 13%, a 21% drop in home prices, slowing economic growth in Europe and Asia, and a 50% drop in stock prices.

The tests assumed that banks would face $534 billion in losses in just over two years, and measured how much capital remained. The Fed earmarked $341 billion of those losses for loan portfolios.

The results of the bank stress tests show how institutions have worked to shore up balance sheets in the wake of a crisis – but can simulations really prove that banks won't fail?

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Three Ways to Profit from Rising Copper Prices in 2012

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Global economic uncertainty can create a volatile metals sector and lead some investors to bail on the industry altogether.

But doing so would mean missing the huge profit opportunities from rising copper prices in 2012.

With uses in both manufacturing and construction, copper remains one of the world's most versatile metals. When economies are doing well, copper prices do well due to increased demand.

Currently, global economic woes are still around us. Greece is still on the fritz, and European uncertainty is weighing on growth – which caused a slip in copper.

Copper prices fell close to $3.00 per pound in September. They've climbed back to around $3.90 per pound, but are still about 18% from where they were a year ago.

The uncertain European outlook has triggered concern for one of its biggest trading partners as well as copper's ultimate buyer: China.

China is the world's biggest producer and consumer of copper, soaking up 40% of the world's supply.

Europe's economic effect on China has led to fear that the Red Dragon is headed for a cool down this year and that the slowed growth will weigh on copper prices.

The International Monetary Fund (IMF) predicts Chinese growth to proceed at a rate of 8.2% this year, down a full percentage point from last year's actual growth of 9.2%.

These concerns, however, are overblown – and off the mark. What's actually going on in the Chinese economy and copper market is supporting rising copper prices.

Here's why you, too, should be bullish on copper.

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Investing in Japan: Three Choices One Year after the Disaster

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Like it has been for other Japanese families, this past year has been a tough one in my household, too.

Perhaps not surprisingly, Sunday's one-year anniversary brought long-buried emotions to the surface 12 months to the day after the horrific earthquake and the tsunami it spawned devastated Japan.

The tragedy haunts it still. I don't know a single Japanese who isn't affected.

And I still struggle to process the enormity of what's happened in a country where I've spent much of the last twenty years as a businessman, a husband, and a father.

How do you explain a 9.0 earthquake or a 65-foot high wall of water moving at 80 miles an hour?

Or come to terms with the friends and families who were literally wiped from existence

I couldn't explain that to my youngest son, Kazuhiko, when we visited Kamigamo Jinja, our ancestral family shrine to pray shortly after the disaster.

He wanted to know how the spirits of those departed would find their way home each August for Obon, a more than 500-year-old annual celebration when ancestral spirits make their way back to family altars.

My wife, Noriko and our boys, Kunihiko and Kazuhiko, return home to Kyoto this Friday so we'll see if they've made peace in their young lives as so many other children have.

It is through their young eyes that the future does indeed live, as is the case in so many cultures.

The Aftermath of the Japan Disaster

To that end, I'm sure you've seen the many before and after pictures of Japan making the rounds in recent days.

They're staggering and impressive.

But at what cost?

So far Japan has scraped millions of tons of debris from disaster-hit areas into monstrous piles. Only 6% has been burned or otherwise disposed of. You don't hear about that from U.S. news sources.

Nor do you hear about the additional 130 million to 150 million cubic meters of soil that have yet to be scraped, processed or otherwise remediated to eliminate everything from toxic chemicals to radioactive contamination.

That's enough to fill the Empire State Building floor-to-ceiling 143 times.

In the aftermath, only two of Japan's 54 nuclear reactors are online and running. The rest are down for "inspections" and disaster preparedness drills.

There is a good probability that many may never be restarted, especially with anti-nuclear protests building not only in Japan but around the world as a result of this mess. Most are decades old and of questionable design given what we know about nuclear power safety today.

While I used to be a staunch advocate of nuclear power, today I am now firmly against it.

Cleaning up Fukushima is especially problematic on a couple of levels and estimates suggest it may be 40-50 years before the plant is completely decommissioned.

Not only does the Japanese government have to figure out how to contain the mess, but things are so badly mangled on the ground that the Tokyo Electric Power Company (TEPCO) isn't even sure it can locate the melted nuclear fuel rods at the moment!

An estimated 100,000-275,000 people remain in temporary or modified housing according to various sources. The Japanese government is telling people that it may be a decade or more before they can return home — if ever.

To its credit, the government has gone to great lengths to keep neighbors and families together as a means of preserving the cultural groupism that has played such a vital role in Japan's society for more than 1,000 years.

Separating people would have broken that bond and weakened recovery efforts.

So what now?…

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How Apple Inc. (Nasdaq: AAPL) Became the Vampire Squid of Tech

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Business partnerships with Apple Inc. (Nasdaq: AAPL) produce abundant profits – but usually only for Apple.

Using its clout as a vendor of highly desirable consumer technology, Apple secures extremely favorable deals with suppliers, providers of goods and services, and retailers.

Such deals are a major reason behind Apple's extraordinary profits.

"Can Apple continue to roll through industry after industry, soak up all the profits, and leave everything it touches as a smoking wreckage?" Craig Moffett, an analyst at Sanford Bernstein & Co. told the Los Angeles Times.

Despite increases in business volume, many companies that deal with the Cupertino, CA-company discover it's usually a one-sided relationship when it comes to profits.

Apple has, in effect, become the technology world's "vampire squid" — a term coined by Rolling Stone Matt Taibbi in 2009 to describe Wall Street behemoth Goldman Sachs (NYSE: GS).

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U.S.-China Trade War Targets Rare Earth Minerals; Boosts Molycorp (NYSE: MCP)

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Election-year politics have heightened a U.S.-China trade war, and the latest move is focused on limiting China's control over rare earth minerals.

The United States, Japan and the European Union intend to bring a case at the World Trade Organization against China's rare earth minerals exports, a U.S. official confirmed yesterday (Monday).

China currently restricts exports of rare earth metals – 17 elements involved in the production of everything from batteries to light bulbs to smartphones to electric cars. Authorities say China's trade regulations damaged profits to manufacturers and the restrictions have to be removed.

This is the latest move in mounting tensions between the United States and China over trade regulations. U.S. President Barack Obama announced in his Jan. 24 State of the Union address he would create a Trade Enforcement Unit to police China's unfair trade practices. The U.S.-China trade deficit has been growing and has caused more economic friction between the countries.

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How to Use Options to Hedge Against a Stock Market Correction

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Stocks have been mostly higher the past five months, with the Dow Jones Industrial Average recently topping 13,000 for a few days and the Nasdaq Composite touching the key 3,000 mark on the final day of February.

However, the markets have turned erratic the last week or so, and big moves like last Tuesday's plunge have left many investors to worry about a looming stock market correction.

Normally, that would send options-savvy investors in search of protective puts so they could lock in profits on their long stock positions.

In doing so they essentially are buying an "insurance policy" that would pay off should prices indeed turn lower in the next couple of months.

But, as readers who checked out Money Morning writer Don Miller's Wednesday article on the VIX Indicator, which measures trading activity in options on the Standard &Poor's 500 index – and, by association, options on individual stocks comprising the major indices – last week's jump in volatility sent put prices sharply higher.

In fact, the VIX Indicator itself jumped from just 16.83 on Feb. 23 to a reading of 20.84 on Tuesday.

And, though it has pulled back a bit since, the volatility means merely buying protective puts at this time would be a fairly costly proposition.

As an example, assume you hold 100 shares of stock in Las Vegas Sands Corp. (NYSE: LVS), having happily watched as the market's rally carried its price from an Oct. 3, 2011, level of $36.71 to a March 1 high of $56.82.

However, the $3.33 decline by LVS last Monday and Tuesday leaves you little doubt the stock would be vulnerable in any upcoming stock market correction.

And even though the stock rebounded to $55.29 by Thursday's close, you still feel like you need a little protection for your paper profits.

So, what do you do?

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